struggles inside the trunk transition team create tension and his son in law is said to oust christie. fed rate hike its approach 100% as the market believes spending plans will increase inflation. mark carney pushes back against months of criticism aimed at central bank policies, calling it a deflection exercise. this is "bloomberg surveillance." i am francine lacqua in london. we have a wonderful show. it is one week since donald trump was to be the next president of the united states.

white house appointments take shape. power struggles inside the transition team or hobbling efforts to form a government, including what some say is an effort by the president-elect's son in law to clear out loyalists of new jersey governor chris christie. a senior economic adviser on donald trump's transition team has taken aim at the federal reserve. david is a regular on "surveillance." on this side of the atlantic, another central bank or has hit back. think of a little governor mark carney says it is time for lawmakers to face up to their role and stop letting central banks -- stop blaming central banks for sluggish growth. frank's largest bank, bnp paribas, has had the most u.k. business among european banks this year. the bundesliga reviews risks to germany's financial system. we are possibly talking deutsche bank and commerzbank.

a campaign launched by the leader of the french national front. andill talk marine le pen what that means, investing in the world of political risk. first, here is nejra cehic. trump isnald considering nominating texas senator ted cruz to serve as u.s. attorney general, according to a person familiar with the matter. speaking to reporters at from towers in new york yesterday, he said the election was a mandate for change, but did not confirm he was under consideration for a job. cruz unsuccessfully sought the republican presidential nomination, and exchanged a vicious attack with trump during the campaign. and but his bank executive board member says germany will walk away from talks on revamping global capital rules unless key demands are met. bundesbank executive board member says germany will walk away from talks unless key demands are met. they meet in the basel committee on banking supervision.

barack obama says greece deserves space to allow its economy to grow, and has her new calls for european creditors to provide debt relief that will fuel its recovery. during a trip to athens, the u.s. president said it would be better to come up with "a durable solution" as opposed to each year or every six months having a new negotiation. -- usedot police you tear gas and stun grenades to disperse left-wing protesters protesting against obama's business. local news powered by more than 2600 journalists and analysts in more than 120 countries -- i am the church a hitch. -- i am nejra cehic. francine: breaking out of the bundesbank. we are talking about the financial stability report. this is what they are saying. first of all, if a bank's licensure's are suffering -- we have had a lot of ceo's on the

program. this is what we have been talking about. the bundesbank says low rates and slow growth are encouraging a buildup of risk. this is some of the rhetoric we have heard not only from central banks, other central banks including within the circles of overall, ai -- but lot of academics and investors have come on the show to tell us the bundesbank sees -- to tell us. the bundesbank sees no signs of excessive homelands. that is a positive. ofy talk a lot about some these german banks and say they are not profitable enough, that there are no solvency issues. we will also speak to the bundesbank board member later on in "surveillance." with get straight to the markets. it has been quite a week. donald trump was elected on tuesday. actually, we found out almost exactly at this time last week. it means we have had a little bit of gyration. we have had some huge, huge calls on dollar/euro parity. we have had european stocks

rising for a third day. asian shares advancing. oil holding your $45. it is one week since europe woke up to the news that donald trump is going to be the next president of the united states. of course, it has been seven days, and we had seven days of while gyrations. power struggles are starting to emerge in the transition team. my guest will break down what we have learned from this week and how the markets have reacted. he is global head of equity trading strategies at citigroup. is the head of strategies at allen investment partners. i'm brian class is -- and brian is a fellow at the london school of economics. you are one of the first ones to join me on this program as soon as donald trump was named president. what have you been surprised by the most in the last seven days? how messy the transition is? how little we know?

or do these things automatically take time? >> i do not know if it is surprise. even though the pundits got the result wrong, the consensus this might be a disastrous transition have been proven right so far. we have seen a purge of transition figures from a son-in-law of the president elect, which is unprecedented. this has happened overnight. people from the conservative establishment jumping ship. an clear evidence that what we suspected about donald trump, that he does not like criticism, is taking shape in the transition team, and that he does not have a clue. i think there are two personality defects the president may have. they may need to learn on the job, and they may not like criticism or disloyalty. you can have one of those two things, but not both. i am surprised. if we think about the positives, if they are in the, the fact he is going to former goldman sachs partners as possible treasury feel you does that with hope that after bashing the

italy for so long he is at least going to people who have done similar jobs before? brian: there are some signs of establishment figures coming in. the real problem is that in terms of political turbulence, this signals problems ahead, because his base hates these people. the people that propelled donald trump to the white house find people like stephen the nation theike steven menuchen reason for their suffering. that this will heal the rift of the campaign is fantasy. there will be in finding all the way to the -- there will be infighting all the way to the inauguration. francine: you know the political system in the u.s. probably more than anyone in london. i am struggling to understand -- are there checks and balances? there are so my questions about what role donald trump's family will play, the security clearance. are these things written anywhere, but he can or cannot do was to mark or is it free reign? brian: the checks and balances are extremely robust for domestic policy. any new legislation asks that require funding have to come out of congress.

trump isn policy, basically unfettered. he has a very long leash to completely change the diplomatic posturing of the united states. on the international stage. francine: what about security clearances? can he give them to who he chooses? is anrian: this unprecedented thing. a president has never asked for his sons or daughters to have security clearances. i honestly do not know what will happen. francine: what i was surprised is that i have interviewed people on what a donald trump presidency would mean for about six months, or about two years, and everybody said it would be dollar weakness, that nothing good can come out of it. it has been six days, and the markets believe that what he will put in place will work to reflate the economy. that is a pretty large shift in very little time. >> i think the market is adjusting to the fact that there is a possibility. if you think of positioning the last seven years, it has been

about playing low yield forever, pretty much. liquidity risk and so on. central banks in the last few months have been talking about fiscal help. and trump kind of pretty much propelled the yield curve extremely steep in the u.s., and we're seeing the consequences of that. equities are not driving. it is bonds which are driving, and we are just adjusting to it. whether it is happening or not, the fact that the positioning was so extreme is a nation. francine: the lead he will be able to reflate and make america grow again? he is not great. forget the great for now. >> one of the biggest challenges we debated some the times on this program and many others is the low growth environment, the fear of deflation, the fear of getting stuck in something like a liquidity trap. and yet the fiscal push is probably more powerful at this point in time then further monetary stimulus. if you look at trump compared to

japan and europe over the next few years, you can understand a little bit why the optimism is getting back and a hope of inflation is rising. i do agree it is hugely surprising how the market has responded. yes, we were very cautious as an investor community with huge guest levels in the run-up to this event. everybody including ourselves, to be honest, was anticipating and more risk-averse backdrop in the first week after a trump election. it did not happen. it is underscoring once again what a strange environment markets are. francine: paul ryan is a fiscal hawk. he has said no to fiscal spending in the past. how sure can we be that this time around he will give us the way? brian: we have no clue, because there are multiple parties within the republican party. our populist trump advocates who want massive influence of fiscal newe -- fiscal surge and spending. and there are extreme deficit hawks. it will be difficult to say what is going to happen.

the million-dollar question everyone should be asking is, unless to the established republicans stand up to a trump presidency? francine: when do we find out? brian: we will know as soon as real legislation starts to get proposed. antonin: do you consider the majority of republican policies as fiscal hawks? even paul ryan's plans were assuming a miraculous revenue acceleration that he incorporated. are they mainly fiscal hawks when democrats have the presidency? history does not suggest they are very hawkish on budget deficits. that is true. deficit spending has increased more under conservative presidents than democratic presidents, so we will see if the rhetoric matches the reality. the challenge is, how does the rhetoric of the last 18 months match the policy reality when you actually have to govern? francine: thank you so much. we're just getting started. from the london school of economics. we have plenty, including one of

donald trump's economic advisers who says there is a plan for downsizing balance sheet. as europe faces a year of crucial elections, can governments take the sting out of voter anger, or do they need to adapt to trunk -- trum ponomics? mark carney tells leaders to stop blaming central banks for the state of the global economy. we'll bring you the latest u.k. on employment numbers as they break. ♪

francine: let's get straight to the bloomberg business flash. here is nejra cehic. nejra: abn amro has reported a 19% jump in profit, helped by net interest income.

a beat ofcome came in analyst estimates. a dutch lender that returned to the stock market last year also said it would cut another 1500 jobs as part of a cost reduction plan. business was u.s. the most profitable among european investment banks in the first nine months of the year, according to first ever filings filingsecord -- required by american regulators. it made a pretax profit on revenue of $3.87 billion. credit suisse lost money in the states because of restructuring costs. and company has filed confidentially for an initial public offering, according to people familiar with the matter. one of the people said it filed papers with the s.e.c. before the u.s. election and is targeting a valuation of as much as $25 billion. a listing could come as early as march, although no final decision has been made on the

size or timing of the ipo. representatives of snapchat declined to comment. nintendo says it will release super mario run worldwide on december 15. the first mobile edition starring one of nintendo's most a chronic -- most iconic characters will be free initially with an optional to-off payment of $9.99 unlock all features. the highly anticipated launch has a high bar for success after pokemon go. who can forget the phenomenon? that is the bloomberg business flash. francine: a senior economic adviser on donald trump's transition team has taken aim at fed policy. he had done so on this show in the past. he says bond purchases have been very harmful and the central bank needs a plan for downsizing its balance sheet. trump himself was critical of the policy during the presidential campaign, timing low interest rates were creating a big, fat, ugly bubble in the stock market.

wise words. traders are putting the likelihood of a rate hike in december at 94%, the highest it has been all year, on speculation that trump's spending plans will drive an increase in inflation. for more on the fed rate pop and what it will mean for investment, let's bring in the global head of equity trading strategies at citigroup, and an lse fellow. i am surprised -- we were surprised about the shift in the markets after the donald trump. i am really surprised that inflation expectations. everyone was saying -- and i remember covering it. i was in new york and we covered the 10 hours where he suddenly realized that clinton would not win. in the markets, there was a clear believe that trump wins, it means absolutely no hike in december. we have gone from that to a 24% probability of a hike in december. what are the market seeing they were not seeing? valentijn: that is one of the mysteries. that is part of the fun of being

an markets, you know? they surprised us with this, and to some extent, we surprised ourselves with that. what are they saying? some of these trends were visible before the election. let's not forget there was around and 80% probability priced in even before the election. we also were thinking if he would get elected, there would could undermine the willingness of the fed to hike. we never thought that just having trump in the white house could be a justification for the fed not to hike. they needed a real negative sentiment in markets, negative feedback from the markets, and that has not happened. thereby, my opinion is very straightforward that if they continue with what they were flagging, indicating before the election, that they were willing to do on the back of the data. i think on the back of the data, it makes sense. inflation expectations are rising faster. why not hike a bit more? fiscal stimulus is probably

bigger than anticipated. that is another reason to hike. francine: the dollar has strengthened. you could argue the dollar has done a lot of the tightening for the fed. antonin: to some extent. i do agree with valentijn's comment that the fact that the assets reacted ok potentially explains why it is still in. i would question one thing. we called it risk on for the last week. but the biggest asset in the world, the 10 year u.s. bonds, has been in a risk off environment. credit, which is moving in tandem with bonds, it has also been risk off. what has been different in equities -- we would call it a mechanical rally -- is quality is going lower and value is going higher. areeels like the markets going up, but the real story is under the surface. the moves at the s&p r.o.k.. -- are ok. the lack of correlation is gigantic.

francine: if yields go up, and we saw the yields go up on the 30, the 10, and the two-year treasuries, it may be more difficult for the u.s. to fund itself. we talk about bond vigilantes. are they, at the end of the day, going to keep the spending plan on track? antonin: i guess some of the inflation moves, the fiscal -- the market needs to revamp. it may get a little bit out of control. it has on up short-term because of the rate differential. does it mean there is another risk to the dollar further down the line? absolutely. valentijn: but it is too early to jump to that conclusion. it has been a big move. it has been impressive in terms of negative returns that they are digesting. but the level we are observing, especially if it is combined with nominal growth, which is increasing, that would also mean some tax revenues for the government, so it is not necessarily that bad. brian: one thing which is adjusting -- antonin: one thing

that is adjusting in equities, going steeper and steeper -- the yield curve is telling you short-term, little risk. longer-term, bigger risks. francine: we have seen these big moves in the last three days. ryan, quickly, are we sure that donald trump will try to reassure the markets brian:? we hope so, but we have seen a lot of things we took for granted with trump in charge potentially not being taken for granted anymore. i think this is one of the big challenges, going forward. we can speculate all we want about how the markets are moving, but the big picture is, there is a fundamental shift in american politics that is coming january 20. after the brexit vote, there were large shifts in the markets, then thinking, nothing has fundamentally changed yet. we have not invoked article 50. on january 20, something is going to change in the u.s. i think a lot of the speculation of losing the big picture is that nothing has changed yet, but it is coming very soon. changes in the next week may not be the same as the changes once

donald trump the inevitable mistakes of an amateur in for an apology on the domestic stage -- amateur in foreign policy and on the domestic stage. francine: i was told 2016 would be different because donald trump would be different. obama reassures nato that trump will back away from its commitment to the alliance as the transition team's advisor on national security quits. how much continuity can we expect? ♪

francine: "bloomberg surveillance," here in london. european stocks rising for a third day. asian equities also on the rise. oil holding your $45 a barrel rain andor producers output costs. government bonds are falling. -- 107.2.r, 1.0 7 some are calling it parity. they have called that the last few months, it is never quite true. obama comes fears that u.s. will back away from the nato alliance. as trump's chief national security adviser quits, how much continuity will we get? ♪

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francine: this is "bloomberg surveillance." talking about the trump transition and the markets. let's get you a first word news.

>> donald trump considering nominating ted cruz as attorney general. in newg to reporters york, ted cruz said the election was an mandate for change but did not confirm he was under consideration for a job. ted cruz unsuccessfully sought the republican nomination and attacked vicious exchanges with trump. andrea don brett says germany will walk away from talks on revamping global capital rules unless he demands are met and insist the country will not accept a deal at any price and has laid out demands which include essential areas of action for talks later this month and the committee on banking supervision. barack obama says greece deserves some space to allow its economy to grow in history new call for the country's european editors do provide debt relief to fuel its recovery. the u.s. president said it would

be better to come up with a durable solution as opposed to each year or every six months having a new negotiation. greek ride police used tear gas and grenades -- stun grenades to this first left-wing marchers marching against obama's visit. this is bloomberg. francine: we are just getting weaking news out of u.k., had inflation that did not quite grow as much as we thought it would. we saw the testimony of mark carney yesterday under fire when he spoke in parliament -- or the treasury select committee. unemployment for the third quarter of that unemployment rate is falling to 4.8%, a little bit better than the median estimate of 4.9%. , pound reaction straightaway 1.2 460. u.k. third quarter basic wage growth accelerating to 2.4%.

what we found out is that since the brexit vote on june 23, inflation in this country will go higher. if your wage does not follow inflation, you will feel more poor. important the ways growth accelerates. what does donald trump mean for brexit? as your of faces crucial elections, how can governments take the sting out of voter anger? can they throw up defenses against the populist wave or do they need to accept trump economics? i am so grabbed we have a comparative politics person because this is the million-dollar question, what the markets need to figure out, do they trust the polls and is there anything that france going into election, italy looking at a referendum on december 4 can do to temper voter anger? >> the polls were reasonable

accurate on a national lever, hillary clinton will have won by about 2 million votes in the popular vote and close to what the poll said. before we have this alarmist reaction that the data is bad and wrong, take that into context. the clear answer of western europe and the united states in 2016 is that voters are angry and that means the establishment needs to articulate a vision of change that addresses the problems and that is not what trump economics does. francine: voters are anchors at -- voters are angry at what, the elite, politicians come inequality, anti-austerity set up? , theequality is huge backlash against globalization, donald trump is doing very well in the coal mining communities of west virginia and the rust belt states of michigan, pennsylvania and you have an antiestablishment wave and that is where business as usual will

not mean political victories. the key for establishment figures -- it is to articulate a more positive vision that does not turn its back on trade because it is positive but the effects have not been taken as seriously enough because people look at gdp growth and do not look at job loss and if you aren't 55-year-old coal miners in west virginia, the idea that he will have job retraining and of the silicon valley is a fantasy. those people are angry and of politicians do not come up with a solution for people like that there will be more shockwave and world markets. francine: how do you from a market point of view view the referendum and the french presidential election? how do you position yourself, the polls were right and yet the market bets were wrong. risk a lotseen as a of things we have mentioned so far, fiscal, yield curve, us-based, we have seen a lot of

these things with global implications. europe is an afterthought from this point of view and as you highlighted, there is a big political risk ahead of us. francen december 4 and is probably slightly different from the u.s. that is a safety net versus extremist parties. chirac, the country recalibrated. is it a rest for europe and the euro, yes. is athe pound bounce lesser evil type of thing. europe as a whole, japan is doing better because the euro is more complex. francine: marine le pen seems more tolerable than her father. how do you play the markets? >> it is difficult, it is really important to measure and map how

these political events and the political risk in sentiment is developing so we are investing a lot in mapping. -- if you think about the events in italy, the upcoming referendum is a mixed event. wins, if it might trigger bigger challenges because it will deliver a bigger majority to the winning party and 2018 in the elections in italy. if the five-star movement wins the election in 2018, the likely with the breakup in europe is bigger. they make stakes are for italy. -- a mixed picture for italy. is this an inflection point for how we view capitalism? parties, inust brexit, certain parts we are

-- will wese radically rethink the way we do business and the wealth -- and the way wealth is redistributed, is this a catalyst? >> we will have copycat trumps, and the anti-capitalist politics might be replicated. if you are somebody around the world taking about running an antiestablishment campaign, you solve an example of how to do that successfully with divisive rhetoric and antiestablishment rhetoric, railing against fred. -- theng against trade big picture with this victory in terms of market risk going forward is that it seems like people are pricing this victory as mitt romney one. this is not mitt romney, somebody completely different who has no experience in government and does not know what he is doing. the idea we have this optimism form -- from little sliver of policy hands is looking at the

forest through the trees, looking at this as an establishment republican and not trump. the regulation seems like the rich will get richer, this does not seem like an equality move. hand, the people who propelled him to victory are the people who hate the goldman sachs financiers and corporate lobbyists. the rhetoric of the café was to drain the swamp and the transition is filled with those very people. the political volatility, how did the tension play out in a way that influences policy and you see that as the white house andcies -- stephen bannon -- who has more influence will be hugely consequence of poor policymakers. francine: thank you very much. surveillance. coming up, europe's most

profitable like. the bundesbank says low interest rates are encouraging the buildup of risk and european stocks head to a two-week site 100% forrp approaches december. germany will not accept the boswell deal at any price. we speak to a bundesbank board member and an hour. ♪

francine: this is "bloomberg surveillance." stocks slightly lower. : expectations for a u.s.

rate hike in december and now a 94%, let's go to the united kingdom, we just had data that show the u.k. unemployment rate fell to the lowest level in over a decade. there are signs that the labor market is cooling. expectations over cut in rates , a very slim,018 the market is pricing on the likelihood of a hike more than a cut going out to 2018 here and probable economist say we will see either in the next two years , rates set to stay low for longer. the stoxx 600 come up for a third consecutive day. the highest in almost two weeks. little changed today. turned premium, it leads to the question of how bought investors -- for the first time since the start of the year, bonded traders demanding a premium for holding long-term debt after the trump election victory.

the turned premium -- term premium for u.s. treasuries represents the extra compensation investors demand to hold the debt instead of a series of shorter-term notes. monday for then first time since january, rising to .02%, extending the rebound from a record low of about -.75 percentage point in july. this measure fellow below zero for the first time in four decades in 2012. this is another chart, value stocks have been not loved since the financial crisis. chart that shows you how traders from america to europe are increasingly turning to this portion of the stock market which they have shown that since 2 -- which they have shunned. they are trading at their highest valuations since 2009

since growth stocks in the u.s.. in europe, they have become the costly and since may, the change of heart underscore's newfound investor confidence after years of central-bank efforts to restore confidence in the economy. also, this move in bond yields which is boosting the value stocks. the not looked part of the stock market has been given back a bit of love. part of the stock market has been given back a bit of love. francine: the first ever filings by a firm requirement u.s. regulars say the company made a pretax profit of $950 million at . revenue of 3.87 overseas, all of our finance coverage from london. how much of a surprise is this?

>> there are caveats because the business composition of u.s. entities are different and no comparable data. it does reflect the fact that in thefurther ahead model it wants to pursue in a fashion that delivers profit unlike its peers and competitors. posting a loss in the same time and in the midst of a -- other data points interesting, ubs being the largest by revenue even a larger than barclays, deutsche bank having shrunk on an assets basis by almost a third compared to previous filing from the 2011. not surprising reaffirming some of the things we have been watching. francine: i will get to this in a second but we just heard from , thiss dombret, he says

is the financial stability report, he is a bundesbank members, says he is no doubt over german banks solvency. never a worry about solvency in the market? >> i do not think that was an issue but profitability is and the number tells a pretty clear picture. a competitive market in europe is most reliant on lending income, it has the largest part of the puzzle, all of it is difficult to make money with with rates where they are. >> that is the core of the problem for the banking system, profit. for banks always in whatever type of environment, trust, public trust is a key asset to hold. --s is what is in the undermining deutsche bank, even if your solitude looks ok, and there will never be any central --ker saying something about saying something troubling about the solvency, they cannot make that comment so you have to

balance that. , evenust is undermining in good conditions it can undermine any bank and this is the dark cloud over the horizon of deutsche bank. francine: we have talked about regulation,oblem is very difficult to consolidate and if you're a strong bank why would you buy a weaker bank in this environment? how radically different will these banks look like five or 10 years from now? >> if we think that the current shift towards regulation will not change radically with the new resident in the u.s., i think you're looking at business models that dominant --, given the rate environment, do not walk, not generating enough capital, the business is making a lot of money in such as trading have not come back. third quarter was a bit of an improvement. >> exactly, of course there will be challenges from parts of the business models but if you look at the european bank system, the point the ecb has been making,

their margins and profitability is still pretty healthy. it might not be growing at the pace they would like to see but they are still very profitable. does not hold for each individual bank but for the sector at large it holds and the share price has been going down, worried of the future of the model due to regulations so we need to see how that pans out. francine: how significant is this? if donald trump rips up regulation in the united states, this foot extra pressure on european banks -- this puts extra pressure on european banks. -- that is another point, one of the core drive the profitability of banks has been a steepness of the yield curve. to the extent that this reflation trade persists, whether it is trump and it was happening before he

got elected, or other factors that will be beneficial for the business model of the banks. francine: how significant is it? let's say the fed increases by 50 basis points in december, would put extra pressure or less pressure on the ecb to stimulate more and therefore what it automatically help the banks or am i jumping the gun? >> a couple of other factors influencing that but for us long as markets do not turn to negative in a broad sense, the bond market is suffering but helping banks. the ecb will know that u.s. economies on a stronger growth path and the fed is hiking that if europene -- continues to grow, maybe will get talk about tapering the markets around the ecb. francine: thank you very much. coming up later today, we will

have plenty more on the story, we speak to a buddhist being board member -- bundesbank board member andreas dombret. frenchunched by the national front, how should investors position themselves in a world of political risk? can you trust the polls? this is bloomberg. ♪

francine: this is "bloomberg surveillance." we talked about the trump transition, bonds, currency, let's also get some corporate news. abn amro has reported a 90% jump in third-quarter profit helped when that interest income , underlying net income with strips of one-time items came in at 607 million euros come a beating analyst estimates, the state-controlled dutch lender that richards to the stock market last year also said it would cut another 1500 jobs as part of a cost reduction plan. business was the most profitable among european investment banks in the first nine months of the, that is according to first ever filings by the firms required by american regulators.

the company's u.s. unit made a pretax profit of $958 million on revenue of $3.87 billion, in contrast, credit suisse lost money because of restructuring costs. snapchat parent company has filed comfortably for an initial public offering according to the ball familiar with the matter, one person said if i'll taper with the sec before the u.s. election and is targeting a --uation of as much as $20 $25 billion and set a listing could come as early as march although no final decision has been made as far as the timing of the ipo. that is the bloomberg business flash. francine: how should investors position themselves in a world of political risk when opinion polls do not always get things right? let's get more. we talked about the polls and how you would do it, given your smartest flight over the last six months. >> focus on areas where the

election that will not be upcoming or would not change policy, we like japanese equities, it we see a broad set of preference for cyclical stock, the jump -- japanese market is a cyclical one and politically speaking the most stable march economy in the world at this point. it is a cheap market. francine: because people do not believe that abenomics will work and how you cap the 10 year yield? >> as long as they are not try to get the most the volume of the amount of purchases and the yield level, they are confusing the market and what they are aiming for, i think there will be targeting the yield and i think they can't as long as they allow the volume to fluctuate. this is what the u.s. treasury did in the 1960's. it has been done before. i think they can do it.

i agree with your structural corporateout the culture in japan but that is why the market is cheap and why we do not think strategically this is always a long position to hold but in the current global environment, this is a very attractive tactical plan. francine: thank you for joining us. continuessurveillance come in the next hour, tom keene joins me in london, he is in london for the weekend we will talk to the first -- former first minister of scotland and looking forward to the conversation with jim o'neill, he left government treasury about a month ago and we will ask employee at about china. this is bloomberg. ♪ ways wins.

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rate hike ought to approach 100% as the markets move trump's spending plan will increase inflation. mark carney pushes back against months of criticism aimed at central-bank policies calling it a deflection exercise. this is bloomberg surveillance. i am in london with tom keene for the week. talking scotland, trump transition, and the markets. tom: a more eclectic show, jim o'neill coming on in the next hour. to get away from trump, trump, trump, trump. a lot happened at must night. -- last night, these are huge issues about his transition, important questions. francine: if you are a european politician, do you have what it takes to put defenses up for this not to come to europe? let's get to the bloomberg first word news. court justicee

you can maybe comprehensive legislation to start the brexit process, brenda hale is one of the judges who will hear the legal challenge over brexit in january. the government is appealing a lower court really that prime minister theresa make needs backing from parliament to begin the process. china may use a donald trump to use its economic leadership in asia. at the asia-pacific economic corporation meeting in peru, the president is expected to push for a chinese back trade deal that would omit the u.s., trump 's victory -- is considering whether to name senator ted cruz as attorney general according to a person familiar with the matter. ted cruz was at trump tower yesterday but did not say whether he was under consideration for the job. takers ran for the republican nomination for president, referred to him as lighting ted -- lying ted.

i am taylor riggs. this is bloomberg. tom: thanks so much, i was having dinner less night at the mcdonald's at liverpool station, about two blocks over from our office, walk by ubs, taylor riggs was at club 21 in new york. you were having dinner with our wonderful joe micex and the municipal bond team, what was the energy like when you know who enter the door. >> unbelievable, having a quiet dinner and donald trump enters, for all that has been worth, people stood up and cheered and congratulated him. he shook hands with very cordial and -- and was very cordial, it look like a simple family dinner, all of his children were there are around the table. had salad and was very kind. , peoplegy was very good

were congratulating him and cheering and at least giving him some respect. tom: very good, we were supposed to ask what he had for dinner, i do not care about that, what did you have for dinner at 21 club? steak,ake, what else -- what else? tom: congratulations, a real uproar about how mr. trump will be seen in public versus the press pool. at the reporting of the president. francine: we have a politics expert, i am told that there are checks and balances although a lot of the things that will be assumed, that he will travel with the press corps and they will know where he is always. i point to the song about the security clearance over his family. tom: let's get to checks and balances as we revert activator. equities mong currencies commodities and futures, negative and the yields churning below the high levels of today's ago. onto to the next screen if you would this morning. a 13.68 and the dow at

19,000, the dollar, the dollar, the dollar. we will do a lot on the u.s. dollar, the ramifications to em. dxy out at new high levels. francine: if you have dollar strength, is it do a tightening for the fed? wirp, 100% probability of a rate hike. you can see stoxx europe flat. pound, dollar, significant euro-dollar, talk about parity for a while, will it happen? will goause of time we to the guest but i love what you did with the fed ramifications, almost certitude. francine: when we were speaking earlier -- 10 days ago, they set of donald trump wins, no fat hike. -- fed hike. victory triggered

a selloff in global bonds and emerging-market assets while the dollar rose and we are seeing some of those postelection moves back as investors assess whether they are overreacting to the victory. please to welcome the former first minister of scotland. let me start with you here what is a donald trump victory mean to you? the end of austerity? inequality? how can you explain it, if you can come it means he has a clear mandate to do what? >> nobody knows, the campaign rhetoric employed by the donald is frightening to a lot of people, to mexicans, muslims, perhaps to gays and minorities. you see some of that reaction, not just disappointed, fear in that reaction. on international terms, i think

it is a balance between a domestic policy and the economy. and also the fact of protectionism which in international -- there are a few things which are cast-iron laws in economics, one of them is protectionism makes everybody more poor and the less international trade you have, the less freedom of trade you have, the more poor people are. francine: yet this is where the world is going. >> a lot of protectionist forces. instinctal populist and the job of politicians to resist that populist instinct for the greater good. an have the balance between expansionary policy to restore the broken infrastructure of the united states on the one hand, but the looming threat of protectionism which will absolutely make everybody more dispossessedg the and the disappointed of the united states who donald trump was meant to be appealing to. tom: help me with my observation

that london has barely been affected by brexit. how is brexit, the initial days and weeks, how has it affected scotland? >> there has not been a dramatic effect. it is like jumping off a building and saying halfway down we are all right so far. we do not know. the difficulty looming in the economy is a growing realization that the u.k. government does not know. is there is no clear strategy on how it will affect economic. tom: that sets us up for the next segment on brexit but about currency dynamics. francine: about protectionism, if you are in europe and you have held the view, the german view for quite some time. angela merkel has been a begin

of stability for 11 years, how does she fight this current wave a lotulism which brings of things with it, how we cope with immigration and trade deals and open borders? >> i fully agree with what we just heard, protectionism is the real risk, policymakers around the western world have held the line, we have not had an increase in protectionism but with the brexit vote and donald trump, there is a risk of protectionism rising. the german position is clear, germany did the hard label ,arket refers 10, 12 years ago it has record employment and a strong domestic situation. as a result, populist in germans are around 15, 14%, not close to her they are in the u.k. or the u.s. francine: very clearly we spoke to a couple of the trump peter navarro was clear, he believes that any country with a surplus, he

mentioned germany and talked about china, any country with surplus is cheating american trade deals. >> that is wrong economics. simply wrong, any sort of second year student of economics should know that is wrong. data, look at the german government spending is rising 4% year-over-year, private consumption is fairly strong. you cannot accuse the germans of understanding -- under-spending. francine: we are just getting the former french finance minister, he said he is running for president. live pictures. this is north of paris, about 45 minutes from paris. we covered him extensively when he talked about reforms. -- i amential election losing my voice come a presidential election in france next year and the markets need to decide whether they believe in the polls. ,omeone from the far right

marine le pen, much more palatable that her father, but with anti-europe since and you might -- anti-immigration stance, he is not from that camp, very young, 39. tom: a crowded field. francine: he is a socialist, if you look at the left -- tom: let's rip up the script, an important moment for france and you have seen that before, a new populism. did they change the traditional calculus of voting across europe? adventurous,e very after brexit and after the trump the jury --trump victory. the electoral system in france can mitigate against a marine le pen victory because they have a runoff, in france, you cannot win without winning the popular vote like donald trump did.

scotland is interesting because scotland is a country where the insurgent party, the one that has become dominant is very progressive. in terms of international trade and domestic politics. it is not a given the parties which are against the establishment have to be a protectionist in terms of attitudes. francine: you've had referendum that sunlit dust settled it. 159he s&p is 156 out of westminster seats -- tom: you want to jump in? , we findlook at france that among the most popular politicians in the country on the center-right, a reformer, another reformer and on the centerleft, uneconomic performer to while there is talk about le pen, the interesting thing is

performers are -- tom: a more anglo-saxon model? >> a more angela merkel. phrase? i still that francine: with royalties, you have to pay a premium every time you use it. live pictures of marine le pen who has rebranded her movement, she ists to call -- opening her headquarters in paris. he has been the politics for 60 years. if you see a wave of people wanting something new, he is a favorite currently but may not be direct person. be, when he was prime minister, he actually instituted reforms and then it was his president jacque chirac who did not back them up. perseverey wants to and do reforms as president, he would. >> a reasonable point but it is

the supporters in france, they have come up against the strongest candidate because of the knockout system, marine le pen will face the strongest alternative candidate. that did not happen in the united states. francine: reminded me of 2002, i was covering the french election came out ofer nowhere to the second round of the presidential elections. we will be back. coming up in the next hour of "bloomberg surveillance" we it iswith jim o'neill, one of his first tv interview since he left government. this is bloomberg. ♪

surveillance on

economics, finance, international relations joseph nine will join us on all that is going on with trump. lacqua, anf francine interesting relationship with brexit in scotland and no one better to speak to any gentleman who arguably got it started, alexander elliott and the -- always controversial and on point, what is your relationship with the leadership of scotland? are you on speaking terms? >> he was my deputy for many years and my successor. i give total support. i speak for the international -- tom: what is your message to the prime minister may? is important union issues between wales and london,

northern ireland in london, and with scotland. message to prime minister may would be do not disrespect scotland, they voted overwhelmingly to stay within the european union. that vote must be respected. a great contrast to what is happening here in a very clear redline of what that should mean. stay within the single market and treat other european citizens equally and protect the social unemployment rights of scottish workers. that is a clarity that we are not seen from westminster. francine: the pot calling the kettle black, a very u.k. expression. italy's economic development minister said that the brexit policy chaos is unacceptable, is it pales as should be an acceptable -- is it chaos and should be an acceptable? >> it is a hugely complex issue

and as david cameron and his chancellor said, there are no contingency for losing the referendum, so starting from a low base, a blank sheet of paper. people that theresa may has appointed as the key brexit minister's, the foreign secretary, the brexit minister himself and the international trade ministers had different ideas from the history asked to what kind of -- the only thing they agreed on was to vote against europe. francine: i am italian and one of the things most italians and french have held the anglo-saxon model in great regard, you look at the u k and a feeling they are more serious than us when it comes to politics, same as the united states. what has 2016 taught us? >> not to push or bets on anything in politics. bets on anything in politics. well after the polls closed on brexit, if you were a betting

theon, with bookmakers or stock market, long odds against the eventual outcome so 2016 has told us never to think there is a sure thing in politics. tom: i look at scotland at all of the different dynamics and relationships, what is prime minister theresa may need from scotland? what is her demand from scotland as you go to the court ruling in parliament and article 50? >> the court ruling is interesting, scotland has joined the court ruling in the supreme court which is a term familiar to an american you are. -- american viewer. the judges and the supreme court will judge and the westminster parliament will have to be consulted. whether these gutless -- scotland parliament will be consulted, the promised her's problem may be in the house of law, a democratic and legal and

constitutional mess. francine: that is probably well put. women trying to whether european politician can put up defenses against populism, or their grassroots movements in s&p, which means you will be forced to go for a second referendum on scottish independence? >> unless the red lines are spoken about and accepted by the u.k. government, and they could be, if they weren't -- francine: 50-50 chance? >> odds against them being accepted but they should be because they are a legitimate demand. i think there will be another independence referendum within two years. francine: internet our, andreas dombret -- in the next hour, andreas dombret will be with us, we will be asking him about the business model at 6:00 a.m. in new york. ♪

tom: we showed you this this morning, a brief moment with i saw a paper in london this week talking about how scotland's antibusiness. you have the best airport in the world, what is the magic of edinburgh and edinburgh airport versus the train wreck of airports in new york? edinburghe magic that has done in terms of access to europe and the world?

>> they do a good job, a rapidly expanding airport sold for a lot of money. a flight to edinburgh from and to. tom: what do you need to set up business in scotland? >> a decoration that scotland's wish to stay within the single marketplace, not access to it, she manufacturers have access to the single market, within the single market would put a joint boost to the scottish economy and lead to a huge shift of business to scotland which we would be a favor of. tom: tell me your thoughts on northern ireland, what lessons can they learn from scotland as northern ireland the is with brexit? >> it is possible to solve the scottish demands and the northern irish correction with the northern irish border by the same approach, let's see if theresa may finds the statesmanship to do that. francine: why is theresa may by giving assurances to the

nationals that they are welcome here and can stay here? >> this is puzzling, nobody thinks she will kick out millions of citizens, you cannot use people as bargaining chips if everybody knows what the outcome is. tom: we would like to have more time with you come in new york and london anytime we can. thank you so much. tonight on bloomberg television, david rubenstein, financier, wonderful and valuable philanthropist sits down with alphabet ceo eric schmidt, do not miss that. ♪ wow, x1 has netflix?

hey, drop a beat. ♪ show me orange is the new black ♪ ♪ wait, no, bloodline ♪ how about bojack, luke cage ♪ oh, dj tanner maybe show me lilyhammer ♪ ♪ stranger things, marseille, the fall ♪ ♪ in the same place as my basketball? ♪ ♪ narcos, fearless, cooked ♪ the crown, marco polo, lost and found ♪ ♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. ♪ tom: good morning, everyone, "bloomberg surveillance" from london, tom keene and francine lacqua. dollar dynamics is what is most interesting, we will get to that this morning. in new york, to our first word

news. >> house republicans are talking with donald trump's transition team about coming up with the biggest overhaul of taxes -- in three decades. rates on businesses and individuals, and want to scrap provisions of the tax code that they say put american companies at a disadvantage overseas. umbrella labor organization have joined those calling for philip hammond to boost spending on infrastructure. the trade union congress that the country cannot waltz into brexit with their fingers crossed. the group called for investment in roads, railroads, and new homes to him and makes his spending statement next week. in france, former economy minister has announced he is running for president in the elections next year, ending months of speculation. offer anedged to alternative to the political establishment and populists, he is a one-time investment maker

who is the second most popular politician in france. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you. n, now then manco current his bid for the french presidency. we expected this to happen because he resigned in april and in puttingvolved reports and pushing his agenda. >> i think the news itself is not massive but the timing is interesting. now? now -- why coming just after the election of donald trump in the u.s., clearly he sees an opportunity

to send an anti-system message. putting francois hollande in a corner. throughout his campaign, macron has gotten out of things -- ahead of things and not waited for events to unfold but tried to get his message out before things could happen. francine: a couple of miles away, marine le pen is inaugurating her headquarters, does she have a chance of going to the second round of the presidential election? rounds,em is that, two you have two candidates who fight it out, does she have a chance in the second round -- i'm going to the second round -- of going to the second round? >> every poll shows her in the second round, beating coming -- leading coming out of the first

round and a contender in the second round, whether she can translate that into victory is more doubtful but as we have seen in recent weeks, anything can happen. tom: thank you so much, greatly appreciate it. with the announcement in french. we can talk about the future of europe. it is so german centric, does the discussion in france matter to a better economic growth and matter, it matters. >> the discussion is much more about what other countries need to do. time on greece, the discussion is not german centric, it is the anchor in europe and the second point about germany is 15 years ago, germany was the weakest economy in europe and it reforms and it is now one of the strongest. in france, we may have the year to get the kind of reform in

france that the country needs to be as strong as germany here if or others are the next french president. francine: to the german economy, we do not know, angela merkel has been in charge for 11 years, a source of stability, she has not said she will run again, is this a given? >> not a given, there is some uncertainty she may not run. the german political scene is so that the mainstream parties are around 75% of the vote in the popular vote in parliament. the mainstream parties agree, pro-euro, pro-eu, pro-nato, whoever is chancellor from whatever mainstream party would not change the political orientation or the economic orientation of that country very much. nothing like any trump risk in -- zero.ero hidden

they needed to evaluate lire -- >> no. tom: it is too early in the morning to argue your -- to argue. about the relationship of currency between germany and france? >> i have to first get the right, the germany reform itself to the growth. spain did the same in the euro. ireland did the same in the euro. italy has probably done a good step towards that with a renzi labor market reform and the question is now whether we have a risk of reform reversal or risk of a greek style exit. it is not really about that reform, the biggest reform in

italy for the economy, the labor -- if we can get beyond political risk in italy, the economy will be better significantly. tom: where dollar begins to infringe upon europe's path to better economic growth? a stronger dollar, brutal dollar, does that have an effect? >> a slightly stronger dollar is no major obstacle for europe or note major benefit, a modest different for the export outlook. u.s. protectionism is the big risk in emerging market crisis like a year ago would be a risk but in europe, the current movement in markets be at bond, up a little, the dollar up a little. no threat to the economy. francine: this is why i love having you on, you really represent the german view, not always but often, other economists would push back against it, they say germany

would be better in charge of its own currency and policy. exactly, a lot of countries say that but look at one of the arguably most successful economy in the world. francine: are we looking at this difficult -- differently in that donald trump will ring alarm bells, unemployment is at 22% for the youth. if you put more reforms in italy, it will take 5, 10 years for unemployment to go down, do you want to put the people through that much pain? >> the problems, it will take time for reforms to work and in the meantime you have the risk of political upsets. the devaluation, getting out of the euro, punishing italy with 10% bond yields after devaluation would be catastrophic for the country. you do not gain by eight evaluation of what you would lose the bond market.

fortunately, greeks did not do it even though they talked about it. francine: if angela merkel decides not to run or does not want to run, if she is not chancellor to year, does it automatically goes -- to wolfgang, will it be tough to access bailouts in support because he was top on greece -- tough on greece. >> she will likely run again but gap gap -- if they needs to be filled, would that make a difference, no. he would lead the same kind of coalition she does and the policies he would pursuit would be about 99% those of angela merkel, even when it comes to european issues. tom: i want to come back to talk about the u.s. dollar and the dollar moving out on dxy.

we speak of the interdependencies of europe. hour, next interdependence, or lack thereof. america is not in declined comment ♪ the book.

francine: -- tom: new york city is awakening to another day of transition, the politics overnight of transition. ch strong comments by ally has created a first room of comments we will do more on that in our next hour. we welcome all of you with corporate news in new york. here is taylor riggs.

: taylor the parent company of that chat has filed an ipo, they will try to raise up to $4 billion. toy seek a valuation of up $25 billion, they hope to generate more than $350 million in ad revenue this year. russia, saudi arabia, and iraq will have informal talks this week over cutting oil output. iran, at's, iraq, august 2 how to share production cuts and opec hopes of agreement by november 30 indiana, the cartel is trying to stop the fall in oil prices. says the fed president economy could get a medium-term boost from donald trump's economic policy. he will highlight today two of the president-elect policies that could support growth. allow reform that would corporate profits to be repatriated.

much, greatly so appreciate that in new york. i am tom keene in london and with me is francine lacqua. it is a bank of international settlements working paper, 37 pages of detail. a fabulous paper. a firestorm in international economics now. dollar. the u.s. visit u.s. dollar for the world financial system if we see new strength? >> it depends on the reason for the dollar strength, the currency itself is neutral, if the u.s. dollar is stronger because people expect u.s. ,omestic demand to be stronger that means we can expect brazil to export more to the u.s. that is great.

if the u.s. dollar is stronger because we have an uncertain to save havensmp that would be bad but looking at recent market moves, we do not have an over flight to save havens, we have a risk on rather than risk off mode. the idea of linking dollar strength to a bad outcome for bank leverage. if we have a beautiful -- brutal dollar, what does that mean for bank leverage and bank financial stability within the global system? >> if we haven't moved by the u.s. dollar, the major thing happening, it makes it more difficult for people to service their debt which could cause

significant trouble in quite a few countries. having said that, we had a time of serious emerging market adjustment late last year and early this year. any of these economies such as brazil now are probably beyond the worst of adjustment and are in a much less fragile situation than a year ago. tom: i would agree that the adjustment we have seen has been profound for e.m. and within the scope of this paper and the debate, you wonder what the next next is if mr. trump makes uniquely domestic decisions without paying attention to form dynamics. francine: yesterday, we were tongue-in-cheek, the trump tantrum. the billion dollar question which we have not asked is how much does the fed hike by in december? expecting 0.2 percent, maybe 0.25 percent come if we get a , whatike, and the re-

does that do to emerging markets? >> it would be a significant upset for emerging markets as investors were to react to such a surprise and the fed is not going to do it. isolationist, they have looked more at the world than before. they will not spring such a dramatic surprise. tom: let me bring up a chart. ,his is a broad rated chart most of the charts within international economics on dollar used, this up as a the reubenllar, dollar of innate -- late-19 90's. you can see the brutal move from 18 months ago on the right of the chart. to be clear, you are not calling for a brutal move in the dollar holger: not at all, we will need to see what donald trump does, his domestic agenda will be

watered down on congress on taxes anyway. it will be a modest fiscal stimulus, not enough to make for a very strong dollar. francine: we are back to square one. he will not reflate the economy. holger: he will a little bit. not as much of it as the market was fretting late last year. tom: why this is so important is donald trump, if we were not having this massive presumed change in the u.s., if we did not have this massive change in the u.s., this would be just another paper. francine: for me this is another paper. i want to see a plan more than two pages long. i am not being nice, from donald trump. this is the plan, this is fine. the risk for emerging

markets is not the dollar. it for emerging markets is u.s. protectionism. if theywere to come -- were not allowed to earn the dollars in the u.s. they need to service their debt, bad luck. francine: also outflows, we will see them. holger: they would react to protectionism, if we do not get back, we would have much less output. tom: you heard this in the 4:00 hour. willg up, andreas dombret be talking about the paper tom was mentioning and we will talk about stability in german banks at 6:00 a.m. in new york and 11:00 in london. this is bloomberg. ♪

francine: i am francine lacqua with tom keene in london. let's talk banks and regulation about the bundesbank and the financial stability reports. rescuing italy's third-largest and most troubled banks.

he has been writing about this. he joins us here in -- he joins us. , thee looking at basel implications of donald trump and regulation. you wrote yesterday and we got news about bnp paribas, where are the weak spots in europe? been.ks, they always have donald trump as a new element -- adds a new element, the results out of the u.s. are something they have had to do, the european banks. it does not tell us much in reality because the u.s. is still the u.s. and europe debt the european banks will always be the weaker of that relationship. problems that have not been made easier by donald trump's victory. they have to sort themselves out.

they did an important step yesterday, a very well brokered, arranged and carefully constructed deal at it looks like it will be a success. that is -- francine: the italian referendum , the italian referendum is december 4, they need to deal with the italian banks before them? -- before then? yes, the referendum is not a side issue but all these things are important. the italian banks have to make big steps forward. the key is, it is not being used in this context, the magic pixie , the fact monte dei paschi will not use that is the key. tom: the oil within the engine, you do so well is check the trust within the system, it used

to be seen in the commercial paper market, what is the level of trust in bank indicators now? but the huge amount fact that they have not gone into senior debt is a important point. stupiditya level of -- stability that a time banks will find their way out. spreads, ifbank this was at a different time, bank stock share prices have not done well but maybe we are at the bottom and we will work our way out. tom: the backdrop for the banking is the rate of economic growth. deutsche bank, the biggest solution for them is simply better economic growth, right? >> economic growth salsa a lot but we do have economic growth across the western world. it is not going to get much better, if the current pace of economic growth, 2% in the u.s.

and 1.5% in the eurozone, is not good enough for a bank than they have to think about its business model without me want to comment on individual banks. forcroeconomic environment the banks in terms of growth is good as it is going to get for a while. on interest rates, they will rise regularly. tom: does this mean more in s?rgers -- merger .we in america are going what is taking you so long, merge. >> regulation, it is almost impossible and white would you merge two bad things into one. francine: there are two problems. >> two different countries. francine: the ceo of unicredit -- i do not have insider information, the point is that

we have one unique regulator in europe which will not allow cross-border consolidation. >> if that is true and he knows what is in the hidden vaults of socgen, a fabulous story for socgen but most people who work at one bank and go to another do not think that way. tom: thank you so much. i cannot say enough about bloomberg gadfly for the great work they have done on smart short articles with smart short charts. thank you so much as well. jim o'neill in our next hour on mr. trump. we will also look at the bundesbank and joseph nye will join us. ♪

tom: trump transitions, and so, too, the dollar. renewed dollar strength. jim o'neill and the president-elect -- in a time of

populism, america is the last standing. ofhave andrea stunned that the bundesbank. and on your power and interdependence, in this hour, : trump is wrong, america is not in decline. this is "bloomberg surveillance," from london today. tom keene with francine lacqua. is a vibrant brexit. the biggest news today to me is google will commit to a major building project in london. francine: that is some of the news. tom, this is a huge day. politiciana european , you think how do i stop voter anger? do i need to move my policies? do i stand firm? do i look at angela merkel and do a huge re-think? david rubenstein has eric

schmidt on his show tonight, and google has stepped up to the and moved 3000 employees to your london. francine: that is another story. should we get to politics news? tom: let's go to "first word news" with taylor riggs. france, -- in france, foreign minister macron has announced that he will run for election. macron is a one-time investment banker who was the second most popular politician in france. a supreme court judge says the uk may need comprehensive legislation to start the brexit process. and the hell is one of the judges who will hear the -- brenda hale is one of the judges who will hear the case. china may use donald trump's

election to exert economic leadership in asia. asia pacific economic cooperation meeting in peru this week. tojinping is expected propose a trade deal that would omit the u.s. donald trump is considering whether to bring in senator ted cruz as attorney general. that is a person familiar with the matter. republicanthe nomination for president. trump has referred to him as "lying ted." global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom? tom: thanks so much. breaking news. we saw back up retail reports yesterday. this is different. always to compare and contrast home depot, lowe's.

lowe's cuts their forecast. very importantly, they take some form of same-store sales, comparable sales, down to 2.7% from 3.2 percent. the stock takes a drop as well. there is a little bit removed from the improved tone of corporate forecasting we have seen over the last number of days. let me migrate to the data check. equities, bonds, currencies, commodities. dollar, dollar, dollar. jim o'neill with us. a weaker dollar, fractionally stronger. the the next screen, with dow near 19,000. dollar index, 100.35. that is creeping, a grind stronger, right up against the breakout of recent sustained dollar range. we are working out of that range. francine: we are moving out of it slowly. a government bond worldwide falling, this -- we are calling it the trump fed nexus. tom: stunning.

the dollar rising on speculation, and one call that i quite like -- with pound-dollar at 1.2447. 1.0708.lar, a lot of banks put out notes. every time we have not been able to achieve parity. let's see if this time feels different. joining us for the hour, jim o'neill, the former u.k. treasury minister. he resigned after the u.k. voted to leave the e.u. i am so happy to have you in the studio. i have a million questions. first of all, why did you resigned? jim: because it is a really boring answer. i hope your viewers do not completely switch off. beingvery time-consuming a full bench minister in the house of lords, particularly in

the current political structure. the government has a minority in the house of lords so is a full-fledged minister in this arcane world, you are automatically whipped. which means you have to be there for every potential vote. when i accepted it that it would be tough to go on much past two ears. it was tough. it was very -- to go on much past two years. it was tough. it was very demanding. francine: i am italian. accusing the government of being in chaos over brexit -- is it as it is perceived to be, or are they just wrong? oddly, perhaps in the minds of some given my background, i was not involved directly in any brexit stuff. i had my hands more than full on some big policy issues, which

actually i would argue are probably more important to the u.k. than brexit. leading global antimicrobial resistance, which is more important than brexit or donald trump. but i have experience with things like global trade, and as a jr. minister in government -- i don't think anybody was prepared for it. some of the domestic analysis -- i think a lot of the powerful voices who were pushing for brexit did not really expect -- in some cases i am not entirely sure they wanted it to happen. the whole system does not really know quite all it has done to itself, and of course as we see, to the legality, getting out of something which had so much legal structure put in place, it is really difficult. know, it is up there

with the challenges that are there for my summer -- with a challenge that are there for some of my ex colleagues that i left behind. francine: your work to me goes why to almost explaining donald trump in certain ways won, explaining why brexit happened, which is that people feel left out, and that maybe we need to rethink capitalism. is there an inflection point for that, or is it overstated? jim: the day after the brexit if the powerhouse was , it is more now than ever before. obviously, the brexit vote definitely includes a lot of outflow from that part of the

world. if you look specifically at places that are voted in, voted out, even within the north, you can see places that have not just been doing better, voted to remain. you have to be careful. trump should have some -- i am actually doing one of the few things i have decided i am going to do, a bbc documentary about globalization. the thing i have in my head here -- tom: we are going to rip up the script right now. help me with a new globalization in your london. can london provide the leadership in the next 10 or 20 years as it has for centuries? jim: it should. was leavingeasons i antimicrobial resistance, it was so stimulating. the soft the power, power of british voice around the world. when i travel around the world,

including in the u.s., people were shocked in a positive way about british influence. we had robert skidelsky sitting in that seat yesterday. what i would suggest is that the gloom that is out there, the decline that joseph nye talks about, is a new localization where people can win. how do we stay away from a zero- sum neil mercantilism as we heard in the american campaign? role that the cutting-edge news media can play -- as i went through producing this program, tangential to it, is this sort of post-truth world and some of the discussion going on and facebook -- going on on facebook. we live in a world where

everybody has access to information, and they have no idea how true it really is. but it is a vehicle for people expressing opinion, which is fine for all 7 billion of us around the world. that is on balance a good thing. where it has gotten difficult is policymakers who are also living in this 24/7 world, they want to jump to respond to the latest thing so they can appear cool and trendy, and everybody is on twitter and god knows what. i have never done it and i won't . because people have got to reflect on what is the right thing to do as opposed to what is the thing that makes me seem imd the right thing. that is part of the dialogue we have going on. the populist surge and the attempt to respond to it with things that are not deliverable. part a real problematical about how globalization is being

perceived. francine: the noble cause may be true, but that is not why donald trump was elected. so my question to you is, how does the elite in europe, or politicians, reconnect with the electorate. this was midnight last night in new york. a protest taking place. francine: this is a game show for him. jim: the broader thing, which is something i did talk about as a minister briefly an interview with a couple of domestic newspapers -- it was a big lesson from brexit and from this result, not just for political leaders but all leaders, including business. at the core, what one needs to really reflect on -- and it has gone on for the whole of my lifed years of my adult

since leaving university, is the creeping rise of global income going to corporations at the expense of labor. if you keep on with that world, that is what marx kind of tried to -- i think not just global politically, or national politically, we have to find much more engagement. corporate leaders have to start behaving very differently than they have in the past 20 years. francine: we will come back and talk about that. jim o'neill there. coming back, we will speak with a bundesbank board member about the financial stability report and what he said earlier. he said of course the german banks are solvent. we will discuss that next. this is bloomberg. ♪

tom: good morning, everyone. "bloomberg surveillance." thrilled you are with us or it from london, tom keene and francine sex. jim o'neill, tom keene and francine lacqua. let's go to the dollar dynamics. up we go with the dollar off the election. the major trading partners, not china. there is the election with a blue circle. up, up we go, and we break out this morning. jim o'neill, the zeitgeist this morning. it is dollar strength. it has all sorts of ramifications and complexities for the global system. tom: i remember those conversations. i remember those conversations. tom: these are not the jim o'neill bricks of 20 and 30

years ago. they are bigger and more mature now, right? it makes a different dynamic. jim: you know, a lot of the market's reaction to the trump victory is not in the slightest bit surprising, indeed. even though i have obviously been removed from that way of thinking for a couple of years, my instincts within hours were exactly what happened. , linkedwould take issue to a lot of what i learned from the past, and my earliest days, was the whole reaganomics, some comparable aspects. people should not forget that that was the beginning of the biggest decline in the dollar in modern history, because the u.s. administration deliberately forced down the dollar. if you look at the broad of what trump's advisers seem to be saying, and

certainly linking it to the globalist mood, a very strong rising dollar for a long time does not make any sense to me whatsoever. so i think that is very unlikely to persist. tom: here is the money question from barry eichengreen in "the financial at times -- "the financial times." do we have a u.s. political system now that can say enough, if we see too much dollar strength? jim: i have said this to you so many times in the past. i often used to think i knew more than most about foreign exchange but i knew nothing, so who knows? secondly, i often used to say to people, it would seem to me that the national tendency -- the natural tendency of the dollar would be to always rise. policymakers deliberately try to get it down.

at some point, the u.s. will not allow the dollar to keep rising because it does not make sense, particularly with some of the issues with china. never mind all of that. you go back to the pre-plaza world where there is over consuming. how can the u.s. go on doing that? they would end up with a bigger bubble than they had before. a smart strategy is to, at some point, make people think, are you really sure you as bullish on the dollar as you claim you are? aancine: pause it there for second. we will talk about with the ceo's can do. coming up, andreas dombret, a bundesbank board member. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to bundesbank. one executive board member, andreas dombret, says officials reach a bustleto three deal in santiago. great to have you on the program, as always. i want to get back to something you said earlier on. you say you have no doubt over the german bank solvency. do the markets have the same conviction?

i cannot speak for the market, but i can very much tell you that both the solvency and the liquidity for the german banking market is out of question. when we can debate more, which is not as solid as solvency and liquidity, is the earning power and the proximity of the german banking market. again, solvency and liquidity are out of the question. francine: talk a little bit three.asel there was a very interesting deutsche bank note on the back of what we reported. is it in question in any way? is the u.s. commitment in question, and what is the german response? andreas: i would travel to santiago at the end of this month for the final meeting of the basel committee this year with a clear understanding that we reach an agreement which we then can present to the

governess in january. it is very much on my mind to try to nail down the gap, which we are still having, because there is a gap, in order to fulfill also the duty we have, in which we committed ourselves to find an agreement of how to ofnk about the liability risk rated assets going forward. i am not interested in postponing as others have suggested. i'm interested in closing the transaction, but this needs to be a sensible transaction. we are not there yet. i really would like to find a solution. francine: you are talking about a gap. has that gap widened because of the trump win last week? andreas: no, it has not widened. i do not think that any elections have anything to do there arebecause

supervisors and regulators talking to each other, and we are on a very good track in the end of a deal at this month. but there will not be a deal with germany at any price. it has to be a sensible deal, and we have to live up to the commitment, which is that on aggregate there is no significant increase in capital requirement above what we agreed on in 2010. if we get there and we have a risk-sensitive appropriate agreement, we will vote in favor. tom: within your appropriate speech, you talk about the new normal for banking. what does that mean for jamie dimon and john cryan? is the: the new normal model for the euro finance week.

not my model. i cannot speak for john cryan or jamie dimon, but i can tell you that things have changed since 2008, and the foldout of lehman brothers. thank models have to adapt to these new environments. tom: very good. andreas dombret, thank you so much. andreas dombret, with the bundesbank. coming up, jim o'neill will continue with us. much to talk about, and we are honored to bring you joseph nye of the harvard kennedy school. joseph nye, his optimism on donald trump's america. this is bloomberg. ♪

francine: this is "bloomberg surveillance." live from london, as we look at the cheese grater. the weather has not been bad at all. actually quite

glad he does not have to look at parity day in and day out. it was not that long ago, two years ago. jim o'neill, who was at goldman sachs. jim, you said something that was extremely significant. we were talking about the fact that a lot of the politicians need to find a way of putting barriers to not allow some of their reforms be taken too much by populists. but you say the only way of quelling voter anger is to reform ceo's. mind thinking about things in this regard. but some of them have originated from actually being in the middle of the resistance to thinking about the pharmaceutical industry. it has left me thinking more broadly. --need to at least consider i am saying "we" as a

policymaker -- in the u.s. and elsewhere, changing the risk-return way in which companies manage their balance sheets. because we have gone through a long period where there is hardly any real investment going on in many industries, and a lot of companies spend so much time essentially behaving like banks. they will balance -- they will manage their balance sheet and things like shared buybacks becoming huge part of life. when i was trying to understand finance 30-odd years ago, there was a difference between shared buybacks and dividend payments. it does not make sense that so many companies can do that and not think serious about -- francine: but how can you change it? jim: you can salt and take -- you can solve global antimicrobial resistance. j&j and pfizer have spent

decades -- francine: worldwide? jim: you change the tax treatment to make it a lot -- and just buy back shares when you get out of bed. tom: we will continue with jim o'neill. ineph nye will be coming up moments. first we need to go to new york and taylor riggs. taylor: just a few quick things to highlight. earnings per share coming in a little higher than expected, $1.04 versus estimates of $.83 on the dollar. top revenue coming in at $64 billion versus $63 billion. this is that target. comparable sales coming in lower. they are posting their fourth guidance.

shares up slightly, 9%. let's get to "first word news." in france, emmanuel macron has announced he is running for president in next year's election. that ends months of speculation. he is a poet liberal that he is a pro e.u. liberal. he is the second most popular politician in france. house republicans are talking with donald trump's transition team about coming up with the biggest overhaul of taxes in three decades. they want to slash rates on businesses and individuals and scrap provisions of the tax code they say american companies added this advantage overseas. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom? francine? tom: it has been interesting to watch the transition in new york, and it is good to see you driving the conversation forward. to the meeting with

mr. trump last night at dinner is that the rest of the press was not invited, were that? at a private there dinner. i happened to be there with my editor. but it was a private dinner. he walked in, and you were talking about the dynamic of the room. people give him a standing hands, and itng was cordial and respectful. he was sitting down with his private family. most of his kids were there, so trying to have a private moment. tom: taylor riggs being picked up with this photo of the president-elect. invented itn who out of the washington consensus, joseph nye, out of the harvard kennedy school. , wonderful to have you with us. how do you define trump foreign

policy? joseph colon it is early. : it is early. i would say on security policy, he is more likely to stay on course. on trade policy, i think you have radical changes. the end of tpp and so forth. so a mixed bag, and still unpredictable. tom: the backdrop from your wonderful monograph from a year ago, which i claimed was a must-read, and your reaffirmation of project syndicate the other day goes to your optimism on the nation. let's go to the quote, the "morning must-read" from this anding, from professor nye, it is real simple.

tom: professor, how should mr. trump discuss, act, and behave with mr. putin? : he has a double task. he does not want to undercut the sanctions that tell them that neighbor'ssteal your territory. on the oven hand, we have business to do with the russians. iran, afghanistan, north korea, the arctic. --re are lots of things syria and the middle east -- lots of things where we have to do business. so he has to have a businesslike relationship, which is what he prizes himself -- what he prides himself in. but at the same time not let vladimir putin off the hook with regards to his aggression against ukraine. francine: professor, i love what

you wrote. forget soft power. the u.s. is losing hard power, right? if they become more inward looking, you could see the chinese forcing the rest of the world to adopt the renminbi as a reserve currency. do you think there is a real possibility that four years from now the u.s. loses real power? joseph: i doubt that you are going to see the renminbi as the reserve currency. you have to have deep and flexible capital markets in a -- and a realaw rule of law before the renminbi becomes a dominant reserve currency. china is a long way from that. in terms of a hard military power, trump is going to invest in that area. i think we are actually likely to lose more in the terms of soft power, people who want to follow our values because of the rhetoric we are using. i doubt we will lose a lot in

hard power, either economic or military capability. francine: professor, what are your values? are the values under this presidency going to be the same as they were 10 years ago? joseph: i believe in democracy, in power toward people and a certain openness, and those are issues which have been questioned in the campaign. president-elect is going to reaffirm them, as many people have urged him to do. , you have aor nye chapter in your classic look " coping with interdependence." talk about how mr. trump needs hub and spoke system. there is a new calculus here. how does the president cope with that? for 70 years since

harry's day, the united states has had a system of alliances -- for 70 years since harry truman's day, the united states has had a system of alliances. if trump undercuts those alliances, then you are going to see the spillover into the prospects for markets and growth. i think if you look at his initial statements since last week's election, he has been reaffirming on those alliances. he complains about nato not paying -- about nato not and a fruit zone defense, but so did previous presidents is. -- about nato not paying enough for its own defense, but so did previous presidents. tom: joseph nye, and also joining us, jim o'neill. mr. o'neill, you hear professor nye talking about interdependence and the new

calculus. help me with how the united kingdom fits into a new trump foreign policy. nigel farage i believe is stepping in on this debate. jim: it is great to be in on the same session. i have had the pleasure of speaking with him. the whole development is a further step on the path to an increasingly complex world. a couple of other things -- for the u.k. -- and i think you have seen the chancellor articulated reasonably well. we just had a dialogue with china. he was pretty clear that the number one finance guy in this country -- we have two -- we are a very small country. especially post-brexit. we have to have as good relationships with the u.s. as we can, but we have to be more on the front with some of these new powers like china. does nigel farage help with

that conversation, or is he an obstruction? jim: that is something for the policymakers to focus on. what is important for the underlying and long-term health of the u.k. -- we need to be on the front with the likes of china, despite some of the obvious challenges it creates. we need to be in the center of global trade flows more than we have successfully been in the past. we have to remain in the center of global capital flows. while that raises some , welenges for us, as we saw were one of the earliest participants in the asian restructuring. tough guydoes playing or antagonizing china work? jim: i remember all this stuff in the early 1980's, beating upon japan. it never really happened. tom: we have to come back.

jim o'neill and joseph nye with us. please stay with us. worldwide, this is bloomberg. we will be back in two minutes. good morning. ♪

francine: this is "bloomberg surveillance." live from london this week. coming up shortly, it is bloomberg daybreak: americas. i know you have a packed show. you are looking at dollar dynamics and the fed. and in a conversation with the saudi's, the billionaire, and that conversation is coming up in about an hour and 45 minutes. for the market, the fed rate hike approaches 100% for december. the question we are going to

explore throughout the show is whether these two opposing forces -- higher yields and the prospect of fiscal stimulus -- offset against the tightening of financial conditions, and whether the potential for financial condition tightening offsets that of financial stimulus. francine: thank you so much, jonathan ferro. let's bring it back to brexit and foreign policy and we are back with joseph nye and jim o'neill. professor nye, we talk about soft power. how much do we care about soft power if the uk also refuses to do more trade deals? if it all goes to what we are seeing now, so the u.k. loses access to the single market in europe, donald trump recharges from the world order -- donald trump re-trenches from the world order, what will this look like? joseph: soft power is one of the components of power. economic and military power are crucial.

but i agree with what jim said about britain and trade in the aftermath of brexit. if trump really pulls back from taking leadership on things like then the brits are going to have to step up because they will be right in the center of all this. i tend to agree with what he said. the tpp isut, jim, dead. he cannot go back on that. jim: let me throw in another controversial view. i used to debate with peter solomon about this for many years. i think people exaggerate the importance of trade deals in terms of driving trade. the big things that really drive train are the underlying -- the big things that really drive trade is whether you have stuff that somebody wants to buy. if you happen to be geographically close, that helps, too. china has become the number one

countriesrtner with that it never would have had a trade deal with. it is fraught with remarkable complexities. article 50 is being set up in the u.k. as sort of the european cup final. i personally do not think it is quite that important because we are trade with places that growing fast. tom: you would think it was more important if wayne sat on the higher court. i want you to give us a lecture right now within your optimism on america, on the game theory that president trump will face. i want to use an old phrase -- obe, overcome by events. in what way will president trump

be overcome by events? joseph: i think he is going to find that you are going to have china, as jim said, and that is going to be crucial. you will also have continued decline with the high risky behavior from russia. these events that he has not factored in -- when he tries to put a tariff on china or tries to do some deal with russia, this event can take that off course. then you have the total unpredictability of the middle east, where anything can happen with revolutions going on there. i think he is going to have to be prepared for a surprise. nye, thank you so much, from harvard kennedy school. greatly appreciate your attendance today. we will continue in london. later today, william gross of janus capital. in new york, the

2:00 p.m. hour. i can see that, gross in washington. that would make sense. worldwide, this is bloomberg. ♪

"bloomberg surveillance"

from london. i would focus on that top dxy.r, 100.46 on managingticed beijing renminbi to a new weaker level. jim: "-- francine: "managing" is the key operative word there. this is something we have seen. the fed rate rise with capital outflows. we are back with jim o'neill, the former u.k. treasury minister, and for many years, at goldman sachs asset management. debt,is managing huge which huge stimulus, which mean growth is staying at 2.5%. are you concerned about a financial crisis?

jim: i think one always has to be mindful of that risk. i have to say i worry that i do not worry about it enough, but i would say two things that i see rarely discussed. first of all, all of this debt is owned domestically, so it is under their national control. secondly, they have a massive savings rate. what china really needs to do going forward, which is slowly or maybe even fastly, grow the role of the consumer. the chinese consumer does not have any debt. a lot of it is buried in the old corporate sector. peopleally think exaggerate the importance of this issue for china, but i underestimate it. francine: do you worry about policy effect, that when they set interest rates and stimulus,

now they also have to worry about donald trump in the next? jim: not especially. again, when people talk about , it has become like another currency. it is no longer quite what it was. it is going to go up and down. i read all the stuff about how the renminbi is going to go down forever. thedollar is going up, so renminbi will go down. i am sure all of our viewers want to know this from you. marvin goodfriend of jackson hole wrote an import paper on whether rates will have an impact particularly in a recession crisis. help me with the negative rate effect on commercial banking. tell what it does with academics. i do not care -- the hell with

what it does with academics. i do not care about them. what does it mean? thati personally think some elected leaders should be careful about what they say about the central banks because of the seat they sit in. another consequence of the trump victory on top of aspects of brexit -- i think the days of qe , if they are not over, they are close to it. it seems to me from an analytical perspective -- and i have thought about it in my role as a policymaker briefly. i did not have any influence or say, but it is not obvious to me in the last couple of years what qe has done in terms of materially helping. given the inflation targets inflation -- given the inflation target central banks have got, they have to experiment more with these things, but it was quite obvious that the more it went on, the more it identified the losers. , think we really need to back which the markets are smelling and it makes sense to me. maybe it is particularly complicated in europe.

you look at japan -- what is the purpose of qe in japan really anymore? what is it really doing to help japan? i think obviously it has caused huge problems for banks, and we need to roll it back. tom: we need to have you back to talk about the fiscal activism, the amplitude of that. some ofm a big fan of that, particularly with global education and health. tom: let's come back with jim o'neill. thank you so much. we greatly appreciate it and we will do it again another time. we have much more coming up today. jim chanos, his thoughts on china. he has been very cautious. stay with us. worldwide, this is bloomberg. ♪

jonathan: welcome to "bloomberg daybreak." good morning.

alix steel is on assignment today. it is a seven-day winning streak on the dow after a seven-day losing streak. 500. the s&p switch up the board. treasuries lower. yields up six basis points. the big move on crude yesterday, the biggest in seven months. crude at 45.10. david: here is what we know at this hour. donald trump's efforts to assemble his cabinet may be held up by the transition team. the dollar is rising and bonds are falling as the market expects a new certain rate hike by the federal reserve in december, pricing in a 94% chance for a move next month. oil is falling this